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Government to provide two percent interest subsidy for small borrowers under PMMY

On June 24, Information and Broadcasting Minister Prakash Javadekar said, “The 2 per cent interest subvention is estimated cost of the exchequer approximately Rs 1,542 crore. Union Cabinet chaired by Prime Minister approved the scheme for interest subvention of 2 per cent for a period of 12 months, to all Shishu loan accounts under Pradhan Mantri Mudra Yojana”. Shishu Category of PMMY provides the facility of collateral-free loan up to Rs 50,000 to borrowers.

An official statement by the ministry said, “At end-March 2020, about 9.37 crore loan accounts under the Shishu category of PMMY with a total loan amount of about Rs 1.62 Lakh crore, were outstanding”.

It added, “The interest subvention would be payable for the months in which the accounts are not in Non-Performing Asset (NPA) category including for the months that the account becomes a performing asset again, after turning NPA. The move will incentivise people who will make regular repayments of loans”.

The scheme will come in effect from June 1, 2020, for a period 12 months from its commencement. Small Industries Development Bank of India will work on scheme implementation. But for the borrowers who have opted for recent loan moratorium facility by the government will only be able to opt for this scheme a period of 1 year, post the end of the moratorium period.

The government said in a release,” The scheme has been formulated as a specific response to an unprecedented situation and aims to alleviate financial stress for borrowers at the ‘bottom of the pyramid’ by reducing their cost of credit”.

It added, “The scheme is expected to provide much-needed relief to the sector, thereby enabling small businesses to continue functioning without laying off employees due to lack of funds. By supporting small businesses to continue functioning during these times of crisis, the scheme is also expected to have a positive impact on the economy and support its revival, which is necessary for employment generation in future”.

It further said, “The ongoing COVID-19 crisis and the consequent lockdown has led to severe disruption of business for micro and small enterprises which are funded through Shishu Mudra loans. Small businesses typically function on thin operating margins, and the current lockdown has had a severe impact on their cash flows, jeopardizing their ability to service their loans. This could lead to default in repayment and have a resultant impact on access to institutional credit in future”.

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